Tuesday, April 22, 2014

Thursday, September 29, 2011The U.S. Court of Appeals for the Ninth Circuit recently held, that wheredebts were too old to be legally reported, a debt collector's letterimplying that the debts could be reported to credit reporting agenciesviolated the federal Fair Debt Collection Practices Act and the CaliforniaRosenthal Act. The Court also held that the plaintiffs may recovercumulative damages under both the federal and state fair debt collectionstatutes.

The Debt Collector allegedly purchased a portfolio of old debts that couldno longer legally be reported to any credit reporting agencies. See 15U.S.C. §1681c(a)(4). Nevertheless, in an attempt to collect on theseobsolete debts, the Debt Collector allegedly sent substantially identicalletters to about 40,000 debtors residing in California, informing them "ifwe are reporting the account, the appropriate credit bureaus will benotified that this account has been settled." The letters also containeda disclosure which stated in part that "a negative credit reportreflecting on your credit record may be submitted to a credit reportingagency if you fail to [pay the debt]."

The Debtor alleged that the letters supposedly would mislead recipients tobelieve that failure to pay the debts would result in negative creditinformation being reported to the credit reporting agencies. Grantingsummary judgment for the plaintiffs, the District Court held that theletters violated the FDCPA and the Rosenthal Act. Further, a jury laterawarded the class members separate statutory damages under each statute.The Debt Collector appealed, and the Ninth Circuit affirmed.

Analyzing whether the Debt Collector's letters were a "false, deceptive,or misleading representation or means in connection with the collection ofany debt" in violation of the FDCPA, the Ninth Circuit observed that adebt collection letter violates the FDCPA where the "least sophisticateddebtor" could reasonably read the letter in more than one way, one ofwhich is inaccurate.

The Ninth Circuit rejected the Debt Collector's argument that theconditional language, "if we are reporting the account," could notreasonably be read to mean that the Debt Collector would in fact reportthe debt to the credit reporting agencies. In so ruling, the Court notedthat the letters could reasonably suggest either that (1) the DebtCollector was not reporting the debt to any credit reporting agencies andwould make no report in the event of payment, or (2) under certaincircumstances, the Debt Collector could and would report the debt.Because the Debt Collector could not legally report the obsolete debts tothe credit reporting agencies under any circumstances, the Court ruledthat the implication that a positive report could be made was misleading.The Court also pointed out that the Debt Collector failed to includeclarifying language to explain the conditions under which it could legallyreport a debt.

The Ninth Circuit further examined whether the letters also violated theFDCPA by making a "threat to take any action that cannot legally be takenor that is not intended to be taken." The Court observed that a mereimplied threat in the Debt Collector's letters to report the obsoletedebts would be sufficient to violate the FDCPA. Again, the Court rejectedthe Debt Collector's argument that it would be unreasonable to read theletters as implying a threat to make a negative report if the debt werenot paid, because the letters indicate that only a positive report wouldbe made once the debt was paid. The Court noted that in order to make thepurportedly "positive" report, the Debt Collector would first have to makea "negative" report of the existence of a delinquent and unpaid debt.

The Ninth Circuit also held that the Rosenthal Act permits class actions,and that class members were entitled to cumulative recovery of damagesunder both the FDCPA and the Rosenthal Act. The Court cited the FDCPA'sprovision that state law is not preempted except to the extent of anyinconsistency between the FDCPA and state law, and that no inconsistencyexists where state law provides greater consumer protection than does theFDCPA. The Court rejected the Debt Collector's argument that theplaintiffs should not recover multiple awards for the same loss, and notedthat the Rosenthal Act specifically provides that its remedies areintended to be cumulative and in addition to remedies available under anyother law. Finally, the Court noted that although the FDCPA places a capon statutory damages, there is no per se prohibition on cumulative classrecovery under both the state and federal statutes.

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